A collection of best practice articles to help grow companies with an emphasis on finance. The goal of the blog is to explain how these best practices work, enabling anyone to put these ideas to immediate use. Articles are written by Matt H. Evans, CPA, CMA, CFM

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NOTE: Effective January 1, 2017, I will no longer post new articles since I am now fully retired.

Wednesday, April 27, 2016

Hand Shakes vs. Lawyers

We live in a
world where timely execution is critical. Obstacles and delays can be detrimental
to many businesses in this fast paced changing world. What helps is when you
can trust someone based on a handshake and get things done quickly before
having to execute legal agreements. Yes, this may fly in the face of a more
cautious and traditional view of business which advocates, get everything in
writing and make sure you hire a lawyer. However, this traditional view of
business is increasingly not grounded in the reality of how people need to get
things done.

An obvious
challenge is to find people who you can trust, enabling this fast-track
approach to execution. This requires several actions on your part, including:

Identify those who you can trust – Seek out the
most reliable people who have honored their past commitments on a consistent
basis. These kinds of people are critical to seamless execution.

Be realistic with your expectations – Don’t make
it too difficult for others to get the job done. Set achievable targets of
performance that meet your business needs and align with the capabilities of
what others can do.

Willingness to take some risk – If you are an
extremely cautious person who has been burned in the past, you may have to be
more open to trusting others that have a proven track record of past
performance.

“All my parents wanted, was for us to be
trustworthy citizens. And there's a responsibility that goes with that, and it's
not something I take lightly.” - Robin Roberts, host, Good Morning America

Depending
upon your physical location in the world, a hand-shake may be appropriate for
doing business. People who know one another in rural settings often provide
business based on a word and not a formal contract. If you plan on doing
business based on a hand-shake, try and meet the person face-to-face, observing
their tone and body language. They should convey confidence and trust.

You should
have some ideas on exactly what you want, what price and over what time frame.
Do not go into a negotiation without having the basic terms worked out in your
head. You should also confirm your understanding by email communication.In some cases, you may want to have the
parties execute immediately to see if they are in fact trust worthy.

"I'm a big believer that a person's
word and handshake is the best signature you can have. If you keep it simple
and clear ... the only reason you get screwed is because the other person is
lacking in character. But if someone is intent on screwing you, they're going
to do it whether you have it down on paper or not." - Marcus Lemonis of
CNBC's The Profit.

The
undeniable key to making a hand-shake work is trust. When you have high levels
of trust, you are going to get things done really fast. When you have low
levels of trust, things are going to crawl along through the legal process. And
don’t forget, there is a cost associated with this legal process including
hidden cost such as longer times to getting your products to market.

It is
regrettable that we have lost the art of how to do business based on a
hand-shake. There are distinct advantages to this approach, mainly in getting
things moving quickly. This is why business based on a hand-shake has become
more important than ever. It sets everything in motion and conveys the building
blocks for the final agreement to follow. Yes, it is true that business has
become less personal and everything is about the written contract. But if you
have simple and clear task that can be performed by someone you can trust,
don’t be afraid to initiate the process with a hand-shake. Keeping the lawyers
out of the room, at least on a temporary basis, can sure go a long way in
helping you execute.

“The handshake depends on who you`re dealing
with. If you`ve known the person you`re dealing with all your life and he`s
been honest and all, there`s no question about a handshake. If he`s a
fly-by-night coming in here, you`d better have your contract out.”– Lifelong Rancher A.E. Whaley of Kissimmee